Higher Income Spending/Saving Strategies?

[feh]

Originally Posted by f2point8

Okay- so here is the question: I am in my early 30's. I worked very hard (in my opinion) to get to this point in my life. I feel like I have a lot of time to let my savings grow at the rate I’m building it. The cars I am feeling drawn towards cost between $65,000-$90,000. I know, I know--Totally not frugal, a totally self-indulgent want, not a need.

Any thoughts on this situation?

Thanks.

I may have missed it - what is your monthly mortgage payment? Do you live in a huge house, or are you in an extremely high-cost-of-living area?

Here's my $.02 - if I were in your shoes, there's no way I would buy the car, even if you can afford it. Not only that, but I would try to reduce my monthly expenditures and save, save, save.

Here's why - pulling in that kind of salary, if you make a concerted effort to sock away as much money as you can, you could retire very soon, perhaps in 10 years or less.

Having financial freedom to do whatever you want while still in your forties would be a fantastic situation, and you have the means to achieve it.

[SavingNJ]

Originally Posted by feh

Here's why - pulling in that kind of salary, if you make a concerted effort to sock away as much money as you can, you could retire very soon, perhaps in 10 years or less.

Having financial freedom to do whatever you want while still in your forties would be a fantastic situation, and you have the means to achieve it.

agreed, but I won't go to so far to suggest OP not to purchase the car as I think most people will have something they really want. DH loves boats. I am just caution on where he draws the line.

Bottom line, may be as OP pointed out "I am just trying to figure out what I want for myself"

[f2point8]

I really appreciate the replies so far. I am really going back and forth on this one, but I kinda suspected what people in a forum on a web site dedicated to saving would probably have to say (as opposed to what feedback I'd probably get back after posting all my numbers in the BMW forums).

Your replies have given me pause to reflect on what my long-term saving goals are. There is no way to know what the economy will do, and I'm sure even though I have a fairly secure job, bad things can and do happen economically to change the rules of the game.

I didn't mention my mortgage payment- I have a payment of about $3500/mo including taxes and insurance that is part of my monthly expenditures (about 11.7% of my gross monthly payments). I guess I took some satisfaction that, even though this may appear gigantic to some (it would have seemed that way to me a few years ago) it is quite modest compared with some friends that earn quite a bit less.

I talked with my wife about the idea of retiring at age 40, or 50. I didn't mention here that my job, while stressful at times, has me working rarely over 30 hours a week, with 7 weeks of vacation time a year. I think it's a pace I could keep up for a long time. It isn't retirement pace, but when we talk about retirement, I'm not sure why people talk about retiring at 40 or 50. Again, maybe this is something that I'll regret saying later and I don't want to offend anyone here, but if I retired at 40 or 50 I think my wife would go nuts with me around all the time (already I'm probably around too much ) and I think I'd go nuts not feeling all too productive in some profession. But the point is well taken to save as much as we can while we are earning. I guess I'll just have to figure how much.

Just a side note: I went through school with the encouraging words always saying "Sacrifice now, enjoy later". I don't think this was promising a lifelong spending spree. However, I've found that if you debate the merits of saving versus spending, in the long run, saving will always win out on higher moral grounds. But as Keynes said, (I believe) "In the long run, we're all dead." I know too many people who have overspent their entire lives into oblivion, which is tragic. However, I know personally people who've done the opposite- started out frugally, got into a habit of pinching pennies, but couldn't ever get to the point where they turn the corner to enjoying any of their saving, and lived our their lives with a lot of unspent money in the bank--tragic in a different sort of way if you ask me. Is retirement supposed to be that point- or do you just never turn that corner? Probably no solid answer for everybody.

[markusk]

Retirement is often looked to as the "promise land," as if retirement is the end unto itself. But as one of my elderly patients (I am a physician) said to me recently, "Old age sucks." I think that the "journey" to that promise land is just as important. Sock away for retirement, EF, college fund, and live within your means. And don't forget to give some to charity.

Sounds like you are thoughtful and tempered, and have the means to buy that M3.

[jIM_Ohio]

Originally Posted by f2point8

I really appreciate the replies so far. I am really going back and forth on this one, but I kinda suspected what people in a forum on a web site dedicated to saving would probably have to say (as opposed to what feedback I'd probably get back after posting all my numbers in the BMW forums).

Your replies have given me pause to reflect on what my long-term saving goals are. There is no way to know what the economy will do, and I'm sure even though I have a fairly secure job, bad things can and do happen economically to change the rules of the game.

I didn't mention my mortgage payment- I have a payment of about $3500/mo including taxes and insurance that is part of my monthly expenditures (about 11.7% of my gross monthly payments). I guess I took some satisfaction that, even though this may appear gigantic to some (it would have seemed that way to me a few years ago) it is quite modest compared with some friends that earn quite a bit less.

I talked with my wife about the idea of retiring at age 40, or 50. I didn't mention here that my job, while stressful at times, has me working rarely over 30 hours a week, with 7 weeks of vacation time a year. I think it's a pace I could keep up for a long time. It isn't retirement pace, but when we talk about retirement, I'm not sure why people talk about retiring at 40 or 50. Again, maybe this is something that I'll regret saying later and I don't want to offend anyone here, but if I retired at 40 or 50 I think my wife would go nuts with me around all the time (already I'm probably around too much ) and I think I'd go nuts not feeling all too productive in some profession. But the point is well taken to save as much as we can while we are earning. I guess I'll just have to figure how much.

Just a side note: I went through school with the encouraging words always saying "Sacrifice now, enjoy later". I don't think this was promising a lifelong spending spree. However, I've found that if you debate the merits of saving versus spending, in the long run, saving will always win out on higher moral grounds. But as Keynes said, (I believe) "In the long run, we're all dead." I know too many people who have overspent their entire lives into oblivion, which is tragic. However, I know personally people who've done the opposite- started out frugally, got into a habit of pinching pennies, but couldn't ever get to the point where they turn the corner to enjoying any of their saving, and lived our their lives with a lot of unspent money in the bank--tragic in a different sort of way if you ask me. Is retirement supposed to be that point- or do you just never turn that corner? Probably no solid answer for everybody.

If work "fulfils" you, no reason to stop
I see little point in working because I dislike it.

so you are correct- some occupations/jobs/schedules are more conducive to working than others

[kork13]

First of all, let me applaud you on the M3 -- it's a fantastic car, and definitely my dream car. Hopefully I'll be able to get one myself in 4-5 years. They depreciate rapidly in the first 2-3 years, then level out and hold relatively solid for a while. I'd recommend looking for a quality M3 about 2 years old, and prior to buying, get it thoroughly checked out by a qualified BMW shop. It'll save you a bundle.

I'm mostly in agreement with you. Define and work towards your short-/mid-/long-term goals. Once you know you're on-track to meet those goals, feel free to enjoy your money (within reason). Do I consider an M3 "within reason"? It's a case-by-case thing, and for you in particular, sure as heck I do! But why do you want a third car? Why not sell one before buying the M3? It'll save on maintenance and insurance for a third car, plus could give more free cash to put toward the M3.

Saving is important -- never let "stuff" take precedence over that. But once you're saving the amount that you need in order to accomplish your goals, the rest is fair play.

ETA: one additional thought... if you want to finance it, that's fine (cash is better, of course). But make sure you get the best possible rate (<4% if at all possible), and keep the term short. 3 yrs is good. It'll be higher monthly payments, but will save you thousands. Also, I'd hate to have something terrible happen to the car (major breakdown, accident, etc.) and not own it outright. shorter loan periods help that situation. Run the numbers, I think you'll find you can reasonably afford the shorter terms (by my quick calculations, a $65k loan w/ $2000 payments is finished in 3 years)

[feh]

Originally Posted by f2point8

I didn't mention my mortgage payment- I have a payment of about $3500/mo including taxes and insurance that is part of my monthly expenditures (about 11.7% of my gross monthly payments). I guess I took some satisfaction that, even though this may appear gigantic to some (it would have seemed that way to me a few years ago) it is quite modest compared with some friends that earn quite a bit less.

This paragraph gives me the impression you need to re-think your approach to money. You shouldn't be comparing your monthly mortgage against your friends that earn less. Just because they're living in debt doesn't mean you should be. $3500/month is gigantic, regardless of your income. I know it can be difficult, but try to keep an objective perspective.

I talked with my wife about the idea of retiring at age 40, or 50. I didn't mention here that my job, while stressful at times, has me working rarely over 30 hours a week, with 7 weeks of vacation time a year. I think it's a pace I could keep up for a long time. It isn't retirement pace, but when we talk about retirement, I'm not sure why people talk about retiring at 40 or 50. Again, maybe this is something that I'll regret saying later and I don't want to offend anyone here, but if I retired at 40 or 50 I think my wife would go nuts with me around all the time (already I'm probably around too much ) and I think I'd go nuts not feeling all too productive in some profession. But the point is well taken to save as much as we can while we are earning. I guess I'll just have to figure how much.

Retirement doesn't equal sitting around the house idly. It means financial independence. You could volunteer, go back to school, take some job that doesn't pay well but that you've always been interested in, or take a year off and travel. Financial freedom.

[zetta]

I talked with my wife about the idea of retiring at age 40, or 50. I didn't mention here that my job, while stressful at times, has me working rarely over 30 hours a week, with 7 weeks of vacation time a year. I think it's a pace I could keep up for a long time.

Just what is this dream job that pays $316k a year for 1.5 years experience, only works 30 hr/wk, gives 7 weeks vacation a year, is not too stressful, not on Wall Street, and is fairly secure? Doesn't sound like any small business or well-paid profession (law, medicine, engineering, big-5 accounting) that I'm familiar with.

Regardless, if you want to maintain the $18k/mo lifestyle to which you've grown accustomed, you will need to sock away about $5.4 million dollars for retirement. Are you on track?

[Ima saver]

My dear husband is a big car person. We do indulge in new car purchases. Our first one was a 1978 corvette which we bought new in 1978 and we still have it.
We love corvettes and have decided that we will drive one until we die!
So, we bought a new one in 2004 and in 2008. We just traded the 2004 vette in for a new 2010 model.
We have never made big bucks ( always under 80K combined) but we don't splurge on anything else. We have over 500K sitting in cash at the bank, plus our IRA's, mututal funds and stocks.
My dh has always been hard working (7 days a week) and he deserves a splurge on cars once in a while!
I think you are doing well and deserve your dream car.

[Ima saver]

P.S., However, I do not have any debt or house payment. House has been free and clear for over 30 years.

[disneysteve]

Originally Posted by Ima saver

P.S., However, I do not have any debt or house payment. House has been free and clear for over 30 years.

This is a huge distinction.

If OP was debt-free and wanted to go out and buy a car for 65K+, I probably wouldn't have a problem with that. That isn't the case, though. This is someone with a $3,500 mortgage payment who sounds like he doesn't really have a good solid financial plan and roadmap for the future. Can he afford the car? Yes, probably so. Should he buy it at this point in his life? Probably not. I think some other things need to be taken care of first before indulging in a luxury purchase like that.

[snshijuptr]

F2point8, I think the main concern on this forum is the purchase of luxuries without a plan for future goals. I'm glad we have you thinking about your goals now. I think you're starting to figure out that its not about depriving yourself until retirement, but being on a steady sfae path toward all your goals by allocating money to those items. If there is money left over at the end of the month, then you can spend it on luxuries like this. I think after you sit down and look at your finances, you'll have a better idea of how stable you are and be more confident in your decision either way.

[minnie1928]

Originally Posted by feh

This paragraph gives me the impression you need to re-think your approach to money. You shouldn't be comparing your monthly mortgage against your friends that earn less. Just because they're living in debt doesn't mean you should be. $3500/month is gigantic, regardless of your income. I know it can be difficult, but try to keep an objective perspective.

The mortgage amount is completely dependent upon where he lives. When I lived in PA, that would have been a HUGE payment. However, in Northern NJ I wish I had a payment that low.

[EEinNJ]

Buy a Miata for $25K, all the fun and half the price. Need faster and 4 doors for the kids? Mazdaspeed 3 for the same price. But I'm biased, I have both!

Overall, I think the OP is in great shape financially. Applause for being sensible about it and asking yourself questions about values. So many struggle to make it, and when they finally do they don't know what to do with it- or worse, don't wait 'til they have it, and spend it all.

[tzsgti]

Originally Posted by zetta

Just what is this dream job that pays $316k a year for 1.5 years experience, only works 30 hr/wk, gives 7 weeks vacation a year, is not too stressful, not on Wall Street, and is fairly secure? Doesn't sound like any small business or well-paid profession (law, medicine, engineering, big-5 accounting) that I'm familiar with.

Regardless, if you want to maintain the $18k/mo lifestyle to which you've grown accustomed, you will need to sock away about $5.4 million dollars for retirement. Are you on track?

I know we are getting personal but i am curious as to what it is as well.

[f2point8]

Originally Posted by zetta

Just what is this dream job that pays $316k a year for 1.5 years experience, only works 30 hr/wk, gives 7 weeks vacation a year, is not too stressful, not on Wall Street, and is fairly secure? Doesn't sound like any small business or well-paid profession (law, medicine, engineering, big-5 accounting) that I'm familiar with.

Regardless, if you want to maintain the $18k/mo lifestyle to which you've grown accustomed, you will need to sock away about $5.4 million dollars for retirement. Are you on track?

In what way doesn't it sound like any of the well-paid professions? Just curious. I will say that we chose to live in a less desirable location (by many people's standards, including our own in some ways) for the foreseeable future for the sake of being able to have this lifestyle (in terms of time off) and income. Salary is played in part by how hard you are to replace, and having a relatively unique skill set in a less desirable location with a small population contributes greatly to my current situation of income and lifestyle/time off.

Judging by some of the responses I'm not sure I've conveyed the "lifestyle" we live now. Yes- 9K/month roughly is what we are spending monthly, but that includes what we donate monthly to various charities (totaling a little over $3000 per month, which might surprise some BTW, perhaps less so to others- not to toot my horn or anything since I hope with my life this posting is completely anonymous ), and a few small luxuries that I'd be happy to cut out and probably will shortly (like the extra movie channels on TV we don't even watch).The mortgage may sound disastrously high, but I live in a state and county that has huge property taxes- 5 times or more than other states I've lived in which adds tremendously to the mortgage payment. Not that we couldn't have chosen a smaller house, but my wife really likes this one, and that is important to her, less so to me. Since starting this job, the other ~50% of the monthly income has gone to get furniture for the home, a little remodeling, some travel, and savings. I wonder if I had made it sound like we are burning $18K monthly buying diamond-studded watches, etc. I still have the same wristwatch I got in school 8 years ago, the same daily loafers I got almost 2 years ago, and my wife and I still bargain shop for groceries, hotel deals, everything. So far we've just been trying to get established after living on very little the last 10 years. Now that the home is about the way we like it (and having furnished our home almost from scratch) we are trying to decide how best to spend the money we had been putting into the home. Again, the home is very nice and I enjoy it, but I would be happy in a smaller home with a smaller mortgage. My wife is encouraging me on the car probably in part because she knows I've worked hard to get to this point, and she knows that she is getting probably a little more satisfaction from the home than I am, and the car would be something that would give me something I really enjoy. It is something I could do without too, and if it ever came to a pinch I could let it go (or not get it in the first place), but I know it would certainly be fun have nonetheless I know I know how to be happy with much less than I make monthly right now. I also know that spending money doesn't make me any happier. But for me part of life is making some great memories, and I guess it is to each his own what kind of car/house/clothes/relationship/country/state those memories are made in.

We have found some very helpful advice here. We did find some used M3's that are about 2 years old with low miles, under warranty, listed approx 15K dollars under new prices. That might be an option we consider, or maybe just save a few more months and decide on something else, even if it is a 335i or 135i, which are both great cars as well. Infiniti has some great cars as well it seems, but they haven't really been on the list of "dream cars" for me, mainly because I didn't know much about them until recently.

[zetta]

In what way doesn't it sound like any of the well-paid professions? Just curious.

Most of the professions require long hours, anywhere from 45-90 hr/wk, especially in the early career-building years. Medicine has residency, law and accounting have crazy years where you work your butt off to make partner. Engineers don't make over $250k unless they start a very successful company. A woman who cuts back to 30 hr/wk after having kids takes a significant paycut and considers herself lucky to have the option. As for specialized knowledge, I'm neighbors with scientists in bio-tech, and they spend years in post-doc training and their initial starting pay is less than my salary as a senior engineer.

Judging by some of the responses I'm not sure I've conveyed the "lifestyle" we live now.

Monthly expenses (mortgage, 1 car payment, dining out, insurance, charity, utilities, etc.)=~$9,000-10,000 (usually less, but just rounding here)
Disposable monthly income ~$8000-9000

I read this to mean you were spending $9-$10k on mortgage, etc., and then another $8-$9k on "disposable" wants, for a total of $18k/mo. Not sure how much is going into your 401k.

If you're on track to reach $5.4 million by your desired retirement age, I see no problem with buying your dream car.

[f2point8]

My annual 401K contribution is 16500, plus another 19500 employer match, to a little over $35K per year. We plan to keep saving, and $3000 monthly averaged over the year would be very easy, $4000 with a little more restraint but still quite doable. One thing I do need to figure out is how best to invest the savings I am doing- it seems like everyone I talk to says something different. Without knowing what rate of return I can reasonably get, it is hard to know how much that would produce at retirement. Along the same lines, it is hard for me to gauge how much I'd really need at retirement, given that I'm assuming that we'd have met our goal to be debt free at that point. With no housing or car payments (or charity contributions), our monthly expenses are $1000-1500 (food, utilities, dining, etc.). Now add on top of that some money for travel, medical care, etc, and we haven't changed our standard of living much if we retire on 60-80K/year in today's dollars. What am I missing here?

Steve- I see you are quite the regular at posting in this forum, and I appreciate your insight. It seems that you thought my mortgage surprisingly high. I did notice on another thread you mentioned that your PITI (did I get that right- principal, interest, taxes, insurance?) was 13.5% of your gross income- did I get that right? I'm not trying to single you out here, honestly... I just got the impression you thought that was too much of my monthly income. The $3500 I quoted is PITI, which is 11.7% of the monthly income. Talking with my wife, I realized the mortgage itself is closer to a little over $2000 per month. Like I said, the "T" where I live is the gotcha.

By disposable monthly income, I mean money that isn't accounted for by any obligation and charity, and is outside of what we budget for living (eg dining out, movie rentals, groceries, etc.).

Again, I appreciate the help- whether or not we decide to get a third car of some sort, your posts have helped my thinking.

[disneysteve]

Originally Posted by f2point8

Steve- I see you are quite the regular at posting in this forum, and I appreciate your insight. It seems that you thought my mortgage surprisingly high. I did notice on another thread you mentioned that your PITI (did I get that right- principal, interest, taxes, insurance?) was 13.5% of your gross income- did I get that right? I'm not trying to single you out here, honestly... I just got the impression you thought that was too much of my monthly income. The $3500 I quoted is PITI, which is 11.7% of the monthly income.

I just reread my replies so far and I don't see where I said that. If something I said implied that, my apologies. That wasn't my intent. I think a mortgage payment that is 11.7% of gross is terrific. Overall, I think you guys are doing great. My concern is that there just seems to be a lack of a big picture plan going forward.

One thing I've said in many threads here is that once the basics are covered, I don't really care how the rest gets spent. It just doesn't matter. In your case, I want you to make sure that the basics are covered. Personally, we don't budget our day to day spending. It just isn't necessary for us to do so. We have 21% minimum of my gross income going to savings and 50% of my wife's gross going to savings. I believe that has us on track for a comfortable retirement at a reasonable age. As long as all of the bills get paid each month, I don't see any reason to worry about how the rest of the income gets spent. It might be on groceries or restaurants or travel or collectibles or charity or theater tickets. Doesn't matter because the big picture stuff is taken care of. For example, I haven't got a clue what we spend on food each month. Don't know. Don't care.

My point is that for you, if you have 20%+ going to savings and all of your other financial obligations are taken care of, buying a sports car might be perfectly reasonable. It probably is. I just wasn't quite convinced of that fact earlier in the thread.

Another thing that I often think is that certain expenses should pretty much be capped no matter how much I earn. Cars are a perfect example. Let's say I earn 100K and I buy a car for 25K. That's 25% of my income. If I earned 300K, the same percentage would have me spending 75K for a car, but that doesn't mean I should. I'd probably still spend the 25K or maybe a little more, like 30 or 35K and have it represent a much smaller percentage. My personal preference would be to drive the cheaper car, boost the savings rate and be able to retire sooner, but that may not reflect your own personal preferences and life goals.

[f2point8]

Steve, I appreciate your reply. One poster above did say the $3500 was huge (and by some standards it is, by others not as much), and I think I blended the collective replies, over-read between the lines (as I frequently tend to do) and assumed that most everyone was out to say I spent way too much on my house!

I think everyone has something that they put a higher value on. You are 100% correct in that for transportation purposes alone (and with a great deal of comfort) $25K is all you'd need to spend on a vehicle in most cases. But I think some people place a higher value on the other intangibles a car might offer than other people might value. When I lived in a location with more things to enjoy around me, I probably would have placed a car lower on the list. Where I currently am, I think I place a car higher on that list. I'll just need to make sure everything else is taken care of before I make that choice. That is probably what you have been saying all along.